What does is mean when price and stochastic don't agree?
Hey guys!
So, I've been trying to figure out how I should interprete charts where the price movement and the stochastics don't match up.
We can take Fireeys INC's stock down below as an example. The stochastics of that chart clearly say that the stock is overbought and that the price should move down pretty soon, but the price have just been going, up, up, up ever since the middle of May. Does anyone know how I should read this and what it might mean for the stock over the next month or so?
Stochastics are a backward looking metric, it will show what the data is AFTER it has happened. The stock price doesn't care that the chart shows it to be "over bought". It could continue this longer than you can stay liquid. Price doesn't have to revert to a mean...it can continue or hold until a study like this eventually shows it as a mid price. If you change the MA's in the study you will see what I mean.
Acstudio said: ↑
Stochastics are a backward looking metric, it will show what the data is AFTER it has happened. The stock price doesn't care that the chart shows it to be "over bought". It could continue this longer than you can stay liquid. Price doesn't have to revert to a mean...it can continue or hold until a study like this eventually shows it as a mid price. If you change the MA's in the study you will see what I mean.
Ok, so all this means is that the Stochastics are lagging behind then? This does not mean that the price might make any sudden changes in price any time soon then?